State Declares Shell Rigs Exempt from Property Tax

Friday, February 08 2013

After the grounding of Shell’s Kulluk drill rig in January, reports circulated that the company had been moving it from Unalaska to Seattle in order to avoid Alaska’s oil and gas property tax. But this week, as the Kodiak Daily Mirror first reported, the state decided that tax doesn’t actually apply to the offshore rig.

That’s despite the Kulluk being grounded in Alaskan waters on January 1, when the tax rolls were drafted. Assessor Jim Greeley says the rig is exempt because statute defines taxable property as:

“Property that’s use is in the exploration, production or transportation of unrefined oil or gas," Greeley says. "But it also states that that activity needs to be in the state.”

The Kulluk drilled exclusively in federal waters off of Alaska this year, but it also spent a considerable amount of time tied up in Unalaska. That led to questions about whether it would be subject to taxation. In November, Greeley told KUCB it was an unprecedented situation, and that the state still hadn’t figured out a tax regime for Shell’s rigs.

And in December, Shell spokesperson Curtis Smith told the Dutch Harbor Fisherman that a potential tax liability of  “multiple millions... influenced the timing” of the Kulluk’s departure from Unalaska.

But Greeley says the state couldn't make a determination one way or the other until after the New Year, since it wasn’t clear whether the rig would actually be in the state. He added that companies don’t have to submit the information that’s used to calculate their liability until January 15.

“So you can’t put the cart before the horse and make a determination before a) there’s a lien date that makes the property taxable by law, and then b) there’s information.”

Greeley says the Department of Revenue also needed to consult with the Attorney General’s office about whether rigs drilling exclusively in federal waters were subject to taxation.

“And they found a 1977 Attorney General’s opinion that supported that determination as well.”

Alaska typically taxes property used in oil and gas exploration at a rate of 2 percent of the assessed value. That would be at least $6 million for the Kulluk, although probably more. Shell’s other rig, the Noble Discoverer, won’t be taxed either.

Greeley says the determination doesn’t preclude municipalities from levying taxes on the rigs.

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